Tobin's nice little earner

Governments in Europe and North America now wield enormous power over big finance. This time last year, Gordon Brown and Alistair Darling were struggling to prevent Northern Rock from being nationalised; such was the stigma attached to state ownership. Today, nobody bats an eyelid when the Treasury takes a 60% stake in RBS or when the Bush administration takes an equity stake in Goldman Sachs.

Clearly, policy-makers never really wanted to be in this position. The UK government said in the middle of last week that its aim was to purchase non-voting shares in British banks and had no desire to put people on boards. That view changed when the markets collapsed on Friday and Whitehall had more control over the commanding heights of the economy than it has had for 30 years.

The question is what to do with this influence. Some measures look like no-brainers: the government should appoint a wider range of stakeholders, including customers and workers, to bank boards to ensure that there is no return to the clubby, you-scratch-my-back world of supine oversight by ineffective non-executive directors. It seems obvious, also, that the government should insist on a more sober and conservative model of banking. Ministers send out the wrong signals when they say they want lending to business and consumers to return to 2007 levels: it was lax lending that got us into this mess in the first place.

This, though, is an opportunity for global as well as domestic reform. In the past, any efforts at cracking down on tax havens, for example, has been stymied by the knowledge that the US and the UK were reluctant to play ball. One of the unintended consequences of the crisis is that it has legitimised coordinated global intervention. There is the chance to make finance once again the servant of the public, which is as it should be.

One obvious reform is to introduce a tax on international currency transactions. This idea has been knocking around since US economist James Tobin first suggested it in the early 70s, but the lack of interest in Washington and London has meant it never gained traction.

Set at a lower level it would raise considerable sums of money. If a levy of just one basis point (one hundreth of 1%) was placed on all currency deals, governments would find themselves with an additional $70bn a year. At a time when they are chucking vast amounts of taxpayers' money at the banks, that would be a nice little earner, and might help assuage the concerns that the public are going to pay for the folly of financiers.

There are alternative uses of the cash, of course. In Washington at the weekend, Britain's international development secretary, Douglas Alexander, said that the needs of poor countries should not be forgotten simply because the developed world had problems of its own. He was right, but inevitably the cost of bailing out the banks will put a strain on public finances in the west and tempt countries to scale back on development pledges. A currency transaction tax set at 2 basis points, assuming no evasion and no impact on trading volumes, would be enough to ensure that all the UN development goals were met by 2015.

The second benefit of a currency transaction tax is as a calming measure during a crisis. Tobin didn't really envisage his tax being used as a revenue-raising device. Rather, he saw it as a way of slowing down the speculative movements of capital that can destabilise economies. There would be no chance of doing so with a levy set at one or two basis points; for that a two-tier scheme would be needed, with a modest impost in normal times and a much higher tax when times get tough. The question of when a problem becomes a crisis should not worry policy-makers. As the past month has shown, when you are in one, you know it.